Japan's Economy Watchers Index Gains As Future Index Deflates

The economy watchers index in Japan rose higher in December as current employment conditions improved. But expectations for the future slipped back.

This novel Japanese index is a survey of people in the service sector who observe (or watch) the service sector economy and provide assessments monthly of what they observe. In December, the 'economy watchers' saw a further advance in conditions, improved employment, but also began to have reservations about the outlook.

The economy watchers index sands at the 92.5 percentile ranking among all its values since 2008. That is to say that it has been this high or higher only 7.5% of the time. The employment situation is a little less strong, having been this strong or stronger only about 12% of the time. The future index is more moderate as it has been at its December level or higher about 28% of the time.

Note that the Markit manufacturing index is similarly evaluated and that index rose on the month to a 91.7 percentile standing, marking it as a similar reading in terms of relative strength to the service sector. The manufacturing PMI can only be evaluated back to January 2012.

The Teikoku survey of economic trends assesses manufacturing and a host of service subsectors plus construction. The Teikoku framework has manufacturing as well as each of the services subsectors as strong or stronger than the Markit index for manufacturing and the Economy Watchers index for overall services.

Notwithstanding the step down in the Economy Watchers Future index, these are extremely encouraging indexes about the health of the Japanese economy in December. They are also very up-to-date assessments.

Teikoku breaks the overall service sector into three components called Retail, Wholesale, and Services (other services). The services reading is highest reading on the timeline back to 2008. The manufacturing reading from Teikoku also is the highest back to 2008. The wholesale sector logs its second highest reading of that span and has been higher by only 5.4%. Retailing logs its fifth highest reading and it has been higher by 13.9%. All of these are extremely solid and strong readings. In addition, the construction sector has a 92.5 percentile standing in the Teikoku framework.

Globally, economies are doing better and central banks have begun to take steps or to plan to take steps to reverse their course of stimulus. The U.S. is the farthest along this process having begun to hike rates in December 2015. The Bank of England has more recently begun to reverse its course of stimulus by starting a cautious process of rate hikes. The ECB just yesterday released information implying that it might be ready to start reversing its asset purchase stimulus later this year. The Bank of Japan is the last stalwart sticking to a program of dedicated stimulus. And while the economic signals in Japan are looking much more solid, inflation in Japan continues to run at a pace below 1% and the BOJ is dedicated to a 2% target. Despite the better growth numbers, the BOJ seems destined to stay the course of stimulus longer.